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Evan Horowitz | Quick Study

Pension plan—and retirement security—at heart of strife between Tufts hospital and nurses

Perhaps the most divisive issue behind the strike by nurses at Tufts Medical Center is retirement security.

Many nurses have an old-school, defined-benefit pension plan — the kind where you just keep getting checks after you retire, without having to worry about the details of how much to contribute, where to invest, or when to withdraw.

Tufts management wants to drop those traditional pension plans and fully join the decades-old 401(k) revolution, enrolling those nurses in tax-free retirement accounts, which the company will help fill.

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Companies have been pressing in this direction for decades now, with great success. Slowly but surely, they’ve transformed how Americans plan for retirement and what they expect from their employers.

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Nearly half of workers in the private sector now participate in some kind of 401k-style retirement plans; back in 1980, that number was 19 percent.

Meanwhile, old-style defined-benefit plans have virtually disappeared. Only 2 percent of private-sector workers rely exclusively on such plans, where once they were the sole support for 28 percent.

Only in the public sector have pension plans really endured, thanks in part to union resistance.

Given these trends, the Tufts nurses seem to be fighting a rearguard action. Why not switch to retirement accounts, as most other workers have already done? After all, there are some real benefits.

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Portability, for instance. Pension plans are company specific, with rules generally set up to favor long-term employees. That keeps people locked in their jobs and inhibits the kind of job-hopping that raises their incomes. Tufts isn’t the only hospital in town; you might not want the prospect of losing pension dollars weighing on you when considering an appealing offer elsewhere.

This problem doesn’t arise with 401(k)-style plans: They stay with the employee and can be easily rolled over to a tax-free IRA.

What is more, the money in a 401(k)-style plan really belongs to you, in a way the pension money doesn’t. You can’t control how your pension dollars get invested, and there are stricter rules about passing benefits on to your heirs. Retirement accounts offer workers a lot more control.

Risk, however, is a big problem. Who’s responsible for making sure retirement planning is done right, and who takes the loss if things go wrong?

In a traditional pension plan, these risks fall mostly on the company. They hire the pension plan managers, pool the money, oversee investment decisions, and prepare the pay out — regardless of what happens in investment markets.

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This is an expensive undertaking that requires consistent long-term planning and falls well outside the core competence of many businesses. Over time, lots of companies — and governments — have gotten into trouble by underfunding their pension obligations, using tomorrow’s dollars to pay today’s bills.

Tufts claims its pension plan is getting less affordable with each year. Of the $11.3 million the medical center is spending this year, more than half is apparently used just to administer the fund (presumably investment fees and oversight).

With costs like that, you can understand why companies want out of the pension business.

And 401(k) plans provide an escape, allowing businesses to shed their long-term responsibilities. All they need do is set up a plan and make annual contributions.

But then workers bear the risk. They decide where to invest, ensure they are setting aside enough for retirement, capture any gains, but also eat all losses.

To get a sense for why this matters, consider those workers who unfortunately reached retirement age during the financial crisis of 2007-2009. Seemingly overnight many saw their 401(k) plans substantially depleted. While younger workers were able to ride out the storm, retirees have more immediate needs, which can force them to sell 401(k) investments at the worst times.

With old-style pension plans, those same retirees would be insulated, their future payouts set in stone regardless of the market conditions.

This is one big reason unions fight to keep defined-benefit pension plans. It’s not really about money. You can easily make a 401(k)-style plan as generous as a traditional pension, merely by increasing the company contribution. Tufts claims they’re doing even more, promising plans that would provide “at least 100 percent” of what nurses can expect from their current pension.

But from the union perspective, that’s not always what matters. Just as important is the surety for workers, where retirement support is guaranteed without having to worry about making bad investment decisions or facing stormy economic times.

As with any negotiation, however, what you want and what you get are often different. With so many Americans having adjusted to the 401(k) era, it may be hard for the Tufts nurses to build popular support for a form of retirement security that increasingly seems torn from the pages of economic history.

Evan Horowitz digs through data to find information that illuminates the policy issues facing Massachusetts and the U.S. He can be reached at evan.horowitz@globe.com. Follow him on Twitter @GlobeHorowitz